in focus turn your business strategies into reality
issue one: spring 2014
don’t delay... get ready for all your 2014 business growth today!
WHC builds hire success business advice
Advice that can help you grow
accountancy & audit
Gloucestershire’s new business hub tax advice
Quintessentially Cheltenham
wealth management
finance
welcome
in this issue welcome to issue one Hello and welcome to the first issue of ‘in focus’ magazine your quarterly guide to growing both your business and your profits. At Randall & Payne LLP we’re proud of our firm’s long history and of our team, who offer breadth and depth of knowledge and experience.
04 news update
Our 130 years experience combined with a youthful dynamic team has helped realize our track record. We particularly enjoy working with young, entrepreneurial enterprises; helping companies grow from initial ideas to multimillion pound businesses!
your guide to what’s new in the world of business this quarter
06 quintessential apartments
a case-study of this successful local business Ian Selwood of Randall & Payne (above).
Often the people with the best business ideas can only maximise their potential if they have the best support and advice. That’s what our partners and in focus magazine deliver: commercially-minded, up to the minute creative solutions to help you grow and develop your full potential.
08 2014 growth & prosperity
04
what to look out for during the next 12 months to ensure your business continues to grow
09 shoots: a guide
what you can expect from claiming for shoots and associated income
11 stroud in focus
a guide to the businesses that call Stroud home
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www.randall-payne.co.uk
contents 05
14 capital gains
the new initiative to introduce capital gains tax on homes for non-residents
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business advice accountancy & audit tax advice wealth management financing business startups valuations buyouts debt factoring
Strategies for growing your business.
Will 2014 bring prosperity for you and your business?
09 19
tax trials
how challenges to an HMRC decision don’t always have an unsuccessful outcome
reference guide simple reminders to current tax and vat information
Changes in capital gains could soon affect house sales for non-residents (below).
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calendar
the important dates for the next quarter
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www.randall-payne.co.uk
spring 2014
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business news
news focus turn your business strategies into reality
your guide to what’s new in the world of business...
Randall & Payne open New Head Office and Business Centre in Gloucestershire Randall & Payne are thrilled to announce they have moved to Chargrove House Business Centre. This new prestige head office centralises their operation into one easily accessible site on the A46, in between Stroud and Cheltenham. With so many staff living throughout the county of Gloucestershire, Randall & Payne are committed to maintaining an active presence throughout the county and will be liaising with clients to ensure their award winning service is maintained and, wherever possible, is improved.
With 90% of our clients within a 20 mile radius of our new office, centralising has the following advantages: •
clients will have access to our full team, all working together in one building with plenty of free parking and comfortable, welcoming meeting spaces.
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the abundance of meeting and conferencing space will enable us to welcome the Gloucestershire community to events at our offices.
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the space suits our needs perfectly, with all of our auditing, accounting, taxation and outsourcing staff sharing one floor.
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Chargrove House previously housed Business Link, so is already known as a business hub within Gloucestershire and now it has a ‘wow’ factor, great for staff and clients alike’. if
With this is mind, Ian Selwood, Managing Partner, said: ‘Rapid growth over the last few years meant we had offices in four Gloucestershire towns over a very small radius. Whilst this had advantages, it was more difficult for us to provide each client with our complete award-winning services. We are committed to continuing our support of local business networks, events and charities and will continue to have an active presence throughout Gloucestershire.
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business news
Tewkesbury business going higher... and hire! WHC Hire Services Ltd are a great example of the contribution SME can make to boosting the economy. Originally based in Worcester, this plant and equipment hire company acquired new premises in Ashchurch and continues to go from strength to strength. A few years ago, James developed and patented the award winning Track Lock system to secure excavators and tracked machinery to the firm’s trailers for transport. Will Abbott, Head of Business Advisory, took responsibility for the client relationship following the acquisition of Morgan Waugh Haines LLP just over 12 months ago. During that period he worked closely with Managing Director James Clutterbuck and Finance Director Laura Roberts. James commented: ‘As a growing business we took the opportunity to review our accountancy needs. The advice and support we have received over the last 12 months fully justified our decision to work with Randall & Payne’.
In addition to the usual accounts and tax work, regular meetings are held to review the management information, help with contract tenders, tax planning and investigating alternative sources of finance. Laura also attends the quarterly Business Leaders Quorum hosted and facilitated by Will at Randall & Payne’s business centre in Chargrove. The workshops are a great opportunity to meet with other like minded business owners to share ideas and solve problems – many of which are common among the members.
under the Growth Accelerator scheme. It is access to this kind of support that has made our relationship with Will so helpful in building an increasingly valuable business’, said Laura. According to James, the success of WHC is driven by customer service and ongoing innovation to meet ever-changing customer needs. Perhaps no surprise then that they looked for the same traits in their advisers.
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‘We are now about to start working with Will to evolve a growth strategy for the firm for the next three to five years and this will be part funded by the Government
helping you grow all the way... Will Abbott, Head of the Business Advisory Team at Randall & Payne, spoke recently to over 60 local business leaders about the Government funding to help business growth.There is no doubt that The Government recognises the economic value that SME contribute, and that they are a key driver of economic prosperity. There are many surveys that, perhaps surprisingly, show that business owners wish to spend more time with their accountants. They value the help that a trusted adviser can bring. Despite this, those meetings do not take place as often as they should, and there are now two funding streams available to subsidise access to professional advice.
The year old the Growth Accelerator scheme is a coaching programme delivered by approved GA coaches of which Will Abbott is one. One of the key attractions of this scheme is that it is outcome focussed. An online assessment is completed and this, along with input from a regional Growth Manager, is used to develop a tailored plan, typically for 6-9 months. During this time they help deliver a plan and overcome any barriers. The coach is paid once the business outcome has been achieved. Admission to the scheme gives access to Leadership & Management Matched Funding of up to £2,000 per person to develop the skills in the senior leadership team, as well as giving access to workshops and group training sessions. Fees depend on the size of the business - £600 for those businesses with under 5 FTE, £1,500 for 5-49 FTE and £3,000 for up to 250 FTE. Eligible businesses are largely those within the definition of SME.
existing providers. The focus is on achieving a successful outcome and promoting growth with only businesses up to 50 FTE qualifying. Grant funding is also available under the Regional Growth Fund. Clients working with John Barker and Ollie Newbold, who are both members of the Business Advisory and Corporate Finance Team at Randall & Payne, have secured grants from £15,000 to £300,000 for Capital investment projects. One of the qualifying criteria is that there must be an opportunity to create or protect jobs. Where the project is viable, such as business relocation or new machinery purchases, a grant of up to 20% is available and these funds are to make sure the project proceeds.
With the economy now showing increasingly strong signs of growth, these schemes may not be around forever. There are genuine opportunities to access funds, especially relevant where the business is likely to incur A new scheme introduced in January was the the expenditure in any event. What is perhaps Growth Voucher scheme. This is generally surprising is that despite all the publicity, aimed at businesses in an earlier stage, but it these schemes still have an air of mystery and is still for strategic advice rather than day may be greeted with scepticism. As leading to day work, plus there are safeguards business advisers, Randall & Payne can deliver in place to ensure that vouchers advice and play an active role in accessing of up to £2000 are not used funding and help to deliver real benefits to for routine advice from your business. Will Abbott is running a Free Growth Accelerator seminar on 13th March. If you would like to attend please email jo.kline@randallpayne.co.uk. if
www.randall-payne.co.uk
spring 2014
05
case study
behind the scenes with Quintessential from small beginnings this local letting agency, with the help of Randall & Payne, has gone from strength to strength English Heritage were involved with the renovations, which meant some apartments, despite having an enormous amount of available space, only had one bedroom. This kept the resale price down, so Tina started to look at the other options available and decided on serviced apartments.
uintessential Serviced Apartments have been operating since 2006, initially using an external agent and now employing staff of their own.
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This, of course, meant that the apartments had to be furnished, so Quintessential Serviced Apartments began with just a couple of apartments, until Tina could afford to turn the whole building into beautifully decorated and furnished serviced apartments.
Owner Tina Carroll didn’t intend to operate serviced apartments, but as their first building in Lansdown Terrace was listed, it took over a year to get planning permission on it and another to get work done.
Tina’s husband, Joe, used Randall & Payne for his business, so Tina started using them when she had her previous lettings business and carried on using them for Quintessential and as the business has grown in size and
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complexity, she has relied on them more and more. ‘Randall and Payne have been very helpful, they give sound advice on the legal compliance side and I’ve built up a very good relationship with Tim Watkins. They’re very approachable and easy to talk to’. Tina has a portfolio of nine buildings, a total of 28 serviced apartments, in the prestigious Montpellier area of Cheltenham and is hoping to expand again this year. Quintessential’s Manager, Shelly, manages the day-to-day running and bookings, Maintenance Manager, Andy, ensures the apartments are kept in perfect order and Housekeeper Louise ensures the apartments are kept spotless and well stocked. Tina supports the local economy by ensuring everybody who works with and for Quintessential are from the local area. if
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corporate responsibility
Design, Advertising, Marketing & PR with impact
corporate responsibility helps local charities and is good PR
businesses should take very seriously their corporate responsibility to make a positive impact in the local community in which they work
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eing fully involved in and developing their local community is extremely important for Gloucestershire based Randall & Payne. They are proud to have been based in Stroud for more than 130 years and then in Cheltenham, Gloucester and Tewkesbury. Fundraising is an important part of their corporate responsibility and they take part in fundraising for many charities, even raising a team to play 11-a-side football against a team from Natwest Bank and Royal Bank of Scotland in aid of Breakthrough Breast Cancer. Every two years the staff choose a main charity to support and in 2013 and 2014 the focus has been on LINC, the Leukaemia and Intensive Chemotherapy Fund based in Cheltenham. Randall & Payne also give
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free professional advice and support to local community and voluntary organisations, through Gloucester ProHelp, part of the national network for sponsorship and fundraising activities. They also support, among others: • Various clubs raising money for local communities •
An annual fundraising quiz at Marling School, in conjunction with WSP Solicitors, for our chosen charities.
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The University of Gloucestershire BUG (Business planning at the University of Gloucestershire) Competition, designed to encourage entrepreneurial skills.
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Meningitis Trust via their ‘5 Valleys Walk’.
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Alzheimers Society UK - with Randall & Payne staff taking part in a 39 mile walk.
The Leukaemia and Intensive Chemotherapy Fund is an important local healthcare charity that works to improve the care of cancer patients in Gloucestershire, Herefordshire and south Worcestershire. LINC provide financial and psychological support for people receiving intensive chemotherapy, as well as supporting their families and loved ones. Please visit their website www.lincfund.org for more information or visit their charity shop at 224 Bath Rd, Town Centre, Cheltenham GL53 7ND. 01242 262112
All in all, Randall & Payne think Gloucestershire is a wonderful part of the world and they’re not in the least surprised that people want to live and build family businesses here. As part of the corporate and local community they want to contribute in any way they can. if
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business news
unlock your true potential for prosperity in 2014 what does 2014 hold for your business? John Barker from Randall & Payne advises us on what might happen in business over the next twelve months and how to make the most of any opportunity
At the time I commented upon bank appetite for lending and the Government’s attempts to stimulate it. I also commented (quite rightly) about banks failure through the 90’s and 00’s to properly assess lending propositions and the resultant lax lending which in many cases equated to pseudo-equity finance. What I didn’t comment upon was the emergence of non-bank lending through ‘peer-to-peer’ and ‘crowd’ funding avenues. Whilst I don’t believe these will dominate the face of SME funding in the future they are a growing and evolving phenomena and I do believe they are here to stay and will provide a valuable alternative to traditional lines of credit, particularly when it comes to filling the hole left by banks not providing the previously mentioned finance. So I turn to 2014 and what we can expect to see from a lending perspective? The banks continue to emerge from the lending doldrums and are actively looking for lending propositions. We even see appetite from some lenders who had all but withdrawn from lending. Banks will once again look at speculative property lending (admittedly from a very conservative stance) and there is a level
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of interest in funding the manufacturing and engineering sectors that I have not seen for many, many years. From our perspective as Business Advisors we see businesses that are cash rich and extremely acquisitive. We see businesses that had reined in capital expenditure now looking at investing in new plant and machinery. We see businesses expanding and looking to acquire larger and additional sites and we see businesses who are committing to projects as bold as any they have ever undertaken.
banks failed in the 90’s and 00’s to properly assess lending The Corporate Finance team at Randall & Payne will continue to source funding lines for our clients and as in 2013 these will invariably be with traditional lending from the High Street Banks; asset and sales finance lines and via grants. We will introduce our clients to external investors and business angels, now with an expanded range of non-bank funders at our finger tips. What I can’t promise is that we will once again support one of our clients through the rigours of securing Dragon’s Den funding. As my children would say: ‘That was so 2013!’
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n 2011 I was asked to provide comment upon the availability of bank funding into the SME sector and in turn the support of ‘UK PLC’.
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business news What we can be assured of is the fact that 2014 will provide a great opportunity for growth. But a word of warning, the growth must be in support of prosperity, not at its expense. Many years ago as a bank manager I sat with a client reviewing his previous year’s results. The year in question was apparently his best ever. He had for the first time ever
any growth in 2014 must be in support of prosperity, not at it’s expense turned over £1,000,000. He was oblivious to my lack of enthusiasm; to the deteriorating trends; to the losses showing
in the profit and loss accounts; even to the cash he had injected into the business to support it. He had grown the business no matter what the cost, ultimately it cost the business. 2014 will yield great opportunities. Go forth and grow, but make sure you grow AND prosper.
John Barker - financing specialist Sometimes it seems the only way forward is investment – but it’s always a wise move to seek independent, expert advice before you take the plunge. If you are considering buying new plant or machinery, extending your premises or moving to a new location, talk to our expert team first. We’ll evaluate all your options and may be able to identify more time and cost-effective ways to increase production or efficiency. We have long-established relationships with many funders and investors and will be happy to help when you do need to raise finance. For more information regarding raising finance or advice regarding business strategy please contact Will Abbott, John Barker or Oliver Newbold of the Randall & Payne Business Advisory and Corporate Finance team. if
beats, shoots and leaves as the shooting season draws to a close it is worth a reminder of the tax treatment with shoots
Private and syndicate shoots are recreational rather than businesses so the contributions to costs should be just that and no more. If the contributions are more than cost and there is then a profit element, it may be considered a business with tax consequences as a result. Farmers letting shooting rights need to consider the VAT position. If VAT registered, as the majority are, then the charge is a standard rated supply and VAT should be charged. Beaters, as with other casual workers, have always been a problem area with PAYE but thanks to the CLA (Country Land & Business Association) an agreement was reached about their treatment. There are however strict record keeping requirements that must be followed and of course don’t forget National Minimum Wage and RTI. If you are running a shoot or letting shooting rights and you want to be sure that you are operating within the rules laid down by HMRC then please get in touch with Randall & Payne. if
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spring 2014
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business news
disclosing income is good for your health! if you work in the health and wellbeing profession then now is the time to get things in order for the April deadline
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MRC have introduced a new tax disclosure scheme for individuals who have not fully disclosed their income.
You can report undeclared income if you work in a health and wellbeing profession such as: • physical therapy – eg physiotherapist, chiropractor, chiropodist, osteopath, occupational therapist • alternative medicine or therapy – eg homeopathy, acupuncture, nutritional therapy, reflexology, nutrition • other therapy – eg psychology, speech therapy, arts therapy
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The deadline for notifying HMRC of your intention to disclose was 31 December 2013, with a full disclosure to be made by 6 April 2014. This disclosure enables people who have undeclared income to bring their affairs up to date and get the most favourable treatment. If you operate in any of the above professions and have undeclared income you would like to disclose please contact Randall & Payne. if
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spotlight on...
Stroud focus... what do these all have in common? Renishaw Bottle Green Dairy Crest Ecotricity Snow Business Delphi Milliken They all operate from
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the District of Stroud!
et in the heart of the five valleys and surrounded by beautiful common land, Stroud is home to some of the largest businesses in the whole of the county. The original development of Stroud owes much to the cloth industry, which can be traced back to at least the 14th century in the Stroud Valleys and the district continues to develop with a diverse commercial base, from environmental technologies and advanced engineering, to heavy manufacturing.
set in a beautiful location, Stroud is a thriving Cotswolds business hub Many of today’s Stroud business owners have a passion, not just for their businesses, but also the town, it’s culture and the famous Stroud Farmers’ Market. As part of Randall and Payne’s involvement with the town, we continue to run our Five Valleys Business Lunch in partnership with Wycliffe College and Harrison Clarke Rickerbys. If you wish to meet Stroud’s business owners and make new connections, email jo.kline@ randall-payne.co.uk for information on when the next lunch will be held. if
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if you run a business in Stroud, you’ll have the right to RePLY! RePLY is a business networking event organised and sponsored by Randall & Payne accountants and Leigh Young solicitors in Stroud
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troud is a long established business centre, with over 27 bespoke industrial estates and a proud history at the forefront of the wool and engineering industries. Stroud has moved on; it is now home to leading entrepreneurs, national and international companies and numerous professional services. RePLY networking has been established with the core aim of exhibiting exactly what Stroud has to offer and to increase the trade and commerce within the area. Our network meetings are fun and informative. We select a different venue for each meeting, so we can broaden our knowledge of every aspect of Stroud’s rich and varied culture and business life Our next event is to be on 26th March 2014 at the Convent Hotel & Spa Woodchester.
The convent in Woodchester is a spectacular Grade II listed building dating from the 17th century which, until relatively recently, housed a superfluity of nuns. Now the property has been purchased and the owner/management team are transforming it into a truly unique environment, including a members club, a spa, restaurant, two bars, a retreat and an ultra-exclusive live music venue, ‘The Chapel’, which can accommodate 250 people. Finance for the project is being sourced by Crowd Funding and Matthew Roberts will be providing an insight into using this embryonic form of finance. If you are interested in attending a RePLY networking evening, please contact Rob Case on 01242 776000 or by email at rob.case@randall-payne.co.uk if
from Stroud’s hills to the London marathon
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eing a regular runner, Rob Case has always had the desire to complete a marathon and after five years of trying, he was lucky enough to get a place for the London marathon on 13 April 2014. ‘Marathon training throughout the winter is challenging, especially during tax return season! I can tell you it is not as easy as running two half marathons, so this is really going to be a challenge.
As motivation I decided to raise money for the British Heart Foundation, a charity very close to my heart. Having lost my brother to a heart condition and more recently with my father’s heart bypass operation, I have been impressed by the research and support provided by the British Heart Foundation and they continue to fight for every heartbeat’. Rob would be grateful for any support that people feel that they can give.
If you would like to sponsor Rob, his sponsorship page is: http://uk.virginmoneygiving.com/runningrobcase if spring 2014
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bespoke funds for business
Ollie Newbold, has been working with one of their oldest clients in securing funding and grants for a new £3 million purpose-built facility.
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stablished in 1897, Hobbs Bros, the city-based oil distributor, is one of Gloucestershire’s longest established Companies and moved to its present site in Hempsted in the 1960’s. The new state-of-the-art site will be purpose-built and will allow Hobbs Bros to move from a rented site to their own bespoke facility. The larger two-acre site will allow Hobbs Bros to hold oil reserves of around a million litres, supplying domestic, commercial and agricultural oil and lubricants within 35-miles of Gloucester. This bespoke facility has been designed by Talus Construction, who are also the main contractor undertaking the build. The structured funding package put in place by Ollie, assisted by banking expert John Barker, comprises a range of asset based facilities and investment together with grant funding.This wasn’t a straight-forward deal, as Ollie says “There is a huge misconception surrounding the environmental risk proposed by a business such as Hobbs Bros and this was one of the hurdles we had to overcome in dealing with potential funders. Understanding all of the risks that a lender might perceive
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spring 2014
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feature is a fundamental part of what we do. That way we can mitigate the downsides and package lending proposals in such a manner with which a funder feels comfortable. Our job isn’t simply ‘number crunching’, we become an integral part of the process liaising with the client; funders; legal teams; monitoring agents and government departments such as the Environment Agency. There will always be unexpected ‘hiccups’ along the way, but if everything has progressed smoothly then we have done our job well.” Funding was agreed in Q3 of 2013 and site clearance work and piling commenced in late 2013. The site is expected to be completed with oil storage tanks installed by July 2014. Mark Hobbs said: ‘Our move to Spinnaker Park represents an investment of more than £3 million which reflects our commitment to the future of Hobbs Bros, our customers, staff and the city. We couldn’t have achieved what we have without the assistance and expertise of Ollie Newbold and Randall & Payne’ if
pension schemes
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s a result of a recent case referred to the European Court of Justice, HMRC is changing its policy on the recovery of input VAT in relation to the management of pension funds. There are certain circumstances where employers may be able to claim input tax in relation to pension funds where they could not previously and this claim could also be backdated for up to four years. The European Court decided that an employer, subject to certain conditions, who has set up a pension fund that is legally and financially separate can deduct the VAT incurred on administration and pension fund management services, provided that there is a direct and immediate link between the services and the employer’s own supplies. This is most likely to affect defined benefit occupational pension funds but could result in a significant repayment of VAT. if
golf clubs
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he European Court of Justice has also ruled in a long awaited decision about green fees paid by non-members of non-profit making golf clubs, clarifying that these can be exempt from VAT. Historically, HM Revenue & Customs took the opinion that green fees paid by non-members were taxable at the standard rate of 20%. Bridport and West Dorset Golf Club have successfully argued that the UK VAT legislation was more restrictive than the European legislation for non-profit making bodies and accordingly there will be several refund claims that should now be paid by HM Revenue & Customs. This is welcome news in a sector where managing the finances of golf clubs is an ongoing challenge, but we would urge all golf clubs to review their VAT position. if
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spring 2014
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feature
capital gains on home sales by UK non-residents UK residents do not pay Capital Gains Tax on property which is their principle private residence, but changes are on the way next year if more than one property is owned, or if you aren’t a UK resident
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he Chancellor of the Exchequer George Osborne announced in his Autumn Statement to the House of Commons on the 5 December 2013, that Capital Gains Tax (CGT) will be introduced from April 2015 on gains made by non UK residents selling UK residential properties. At present only UK resident individuals are subject to CGT on gains made on residential properties. CGT is payable by UK residents at 18% for basic rate taxpayers and 28% for those paying tax at higher rates. UK
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residents do not pay Capital Gains Tax in respect of a property which is their Principle Private Residence. A charge may arise if they own more than one property, subject to tax planning opportunities. Whilst the Chancellor has suggested that this is intended to be fair, as matters stand, owners of residential property in the UK who use that property as a home do not pay Capital Gains Tax. It remains to be seen whether that will apply here and in the end the new charge may not be a major money
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feature spinner for the Treasury – but it would remove the anomaly whereby a non-resident investing through a company pays UK CGT whereas a non-resident investing directly does not. The announcement follows the introduction in April of a Capital Gains Tax charge on residential properties held through companies. CGT is payable at 28% in respect of gains accruing on the disposal of interest in high value residential property that is subject to the Annual Tax on Enveloped Dwellings (ATED). ATED is payable in respect of residential property valued at over £2m held by a non-natural person such as a company. For the CGT charge on properties held through companies, only gains or losses on the property arising are relevant when working out the charge to CGT. The changes will probably apply to nonresident Trusts as well as individuals. However the Main Residents Exemption already applies to any Trusts.
the CGT relief for main residences applies even if you have not been living in the property for the final three years of your ownership
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Full details of the proposed new charge have not yet been published – as there will be a consultation on the proposals in early 2014. For many non-residents the impact of this change will depend upon the tax regime in their country of residence and the terms of any Double Tax Treaty with the UK. Most Double Tax Treaties provide that Capital Gains from land and buildings may be taxed in the country in which they are situated.
Any UK tax payable would normally be credited against any liability for tax on Capital Gains in the non-residents home country – although some countries do not impose Capital Gains Tax. If the liability in the home jurisdiction is more than or equal to the UK liability in the UK the charge will simply shift the tax revenue from the country in which the non-resident resides to the UK without costing the non-residents any more. The CGT relief for main residences applies even if you have not been living in the property for the final three years of your ownership. The Chancellor has announced that with effect from the 6 April 2014, the final period of three years that is currently exempt from Capital Gains Tax where the property has been a main residence is to be reduced by half to eighteen months. if
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taxing trials Rob Case looks at some of the issues around appealing the VAT default surcharge, and some of the principal arguments to put forward to HMRC
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ince the decision on Total Technology (Engineering) Limited [2012] UKUT 418 (TCC) there has been a backlog of decisions released over the past few months from the First Tier Tax Tribunal in relation to default surcharge cases and ‘reasonable excuses’. I have seen at least 30 since the summer. Whether defaults arise from the ongoing economic uncertainty (taking into account the time it takes to have an appeal heard at the First Tier Tribunal), or HMRC not agreeing time to pay, or a combination of both, is not clear. Of 30 or so cases, just three have resulted in successful appeals in full and two have been allowed in part (one of which was a calculation error adjusted by just £1!).
How does a surcharge arise?
A VAT-registered trader is required by law to submit regular VAT returns. A default surcharge arises when a trader is in default, either as a result of late submission or a late payment of VAT. The amount of the surcharge depends on the number of times in which the taxpayer is in default and ranges from 2% to 15%. The key point is that the default surcharge provisions and the issuing of penalty notices are written into the statute book and are very much a way to penalise those who default and to encourage others not to.
HMRC issue automated notices, including all the relevant detail and references. It is therefore difficult to contest a calculation unless there is clearly a mistake.
Taxpayer’s responsibility
It is the responsibility of the taxpayer to be aware of the due dates of the VAT return, as well as payment methods and the time needed to complete electronic transfers; neither HMRC nor the tribunals accept ignorance as an excuse.
Powers of Tribunal
We have repeatedly seen that the tribunal has no power of mitigation of the surcharge and may not amend it. There are only 2 avenues upon which to pursue an appeal in respect of a surcharge: • whether the appellant has reasonable excuse for his failure; or • if the tribunal considers the amount of the penalty is wholly disproportionate to the gravity of the offence. Then the penalty can be discharged. For example in Enersys Holdings UK Ltd v HMRC (2010) UKFETT 20 (TC), the tribunal discharged a potential penalty of £130,000 for the submission being submitted one day late!
Reasonable excuse
Reasonable excuse is not defined in the legislation. That said,
Rob Case - head of vat services Rob heads up Randall & Payne’s VAT services and is a member of the VAT Practitioners Group. He regularly advises businesses in the SME sector and has written the UK200 Group VAT Guide for Academies. He also carries out reviews to ensure our clients are making the best use of the different VAT Accounting Schemes available. These are designed to help aid cash flow and administration. For more help and advice contact Rob on 01242 776000 or email rob.case@randall-payne.co.uk
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VATA 1994 s 71(1) makes it clear that ‘an insufficiency of funds to pay any VAT due is not a reasonable excuse’- commonly quoted by HMRC in arguments. However, taxpayers do have a glimmer of hope, as in Customs & Excise Comrs v Steptoe [1992] STC 757. The Court of Appeal held that, although insufficiency of funds can never of itself constitute a reasonable excuse, the cause of that insufficiency – the underlying cause of the taxpayer’s default – might do so. But this is only successful where there is some ‘unforeseeable or inescapable’ event outside the normal course of business and not just as a result of the economy or cash-flow problems. In the case of Glevum Security Ltd, as a result of a unexpected postcode change and an action by HMRC, the company was flagged as a missing trader. This meant the company was prevented from submitting two of the quarterly VAT returns, although it did not prevent payment. They were able to demonstrate to the tribunal that the company would have been able to pay the VAT liability when it was due and also that the standard practice of HMRC is to return funds if there is no VAT liability or period to which to allocate the money. The key principles relevant in arguing the case were identified in the following: • Louise Fernandez [2011] UKFTT 259 (TC) – sought to identify that it was the responsibility of HMRC to provide online filing facilities that worked and provide the promised filing facility. • Rennie Smith & Co [2013] UKFTT 638 (TC) – confirmed that ‘reasonable excuse’ meant exactly that and had to be considered in light of the whole circumstances of any particular case. • Total Technology (Engineering) Ltd [2012] UKUT 418 (TCC) – identified that the previous compliance history of a taxpayer was not a factor to be taken into account, except for the actual calculation of the surcharge that might apply. Based on the overall case, the tribunal decided that Glevum Security Ltd had a reasonable excuse.
Proportionality
Few cases are drawn on the basis of proportionality; EU law allows UK lawmakers to set tax-geared penalties to
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feature Taking a case to tribunal
With any such matter going to tribunal, the burden of proof is on the appellant to prove their case; to identify the genuine facts that support a reasonable excuse and to present all the evidence in support. Taxpayers are automatically assumed to know their responsibilities, but are also given the benefit of the doubt in certain circumstances. Before making an appeal to either HMRC or the tribunal, do understand the powers available to both and the outcomes. This saves time and money in ensuring a case has a reasonable chance of success. An interesting point is that HMRC, in respect of a default surcharge case, will take the stance of non-negotiation as the calculation is mechanical. One point of note is that they have a fairly standard letter for responding to initial appeals. This was frowned upon by the presiding judge in Glevum Security Ltd, because it did not refer to the facts of the appeal, giving the impression that circumstances had not been considered. Finally, make sure you research recent cases to understand the grounds of a successful appeal and identify other cases that may support yours. The truth is that a decision will be down to the interpretation of the judge. The moral of the story is to avoid defaulting in the first place, which is by all means possible unless, of course, you have a reasonable excuse. if
hmrc appeal - the main points encourage good behaviour and penalise bad and the maximum surcharge of 15% of overdue VAT liability is not deemed to be unreasonable. The only grounds, therefore, for arguing that a penalty is disproportionate, is that the liability imposes an excessive financial burden which is not merely harsh but plainly unfair.
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Many of the cases put in front of tribunal do not involve large amounts of VAT. With Glevum Security Ltd, there was an argument about proportionality as the potential surcharge liability was three times the size it would have been if the company was able to submit VAT returns but, in the end, reasonable excuse was found and the appeal was allowed.
What is the issue?
Most default surcharge appeals are being dismissed at tribunal
What does it mean to me?
‘Reasonable excuse’ is the most likely avenue of a successful appeal
What can I take away?
Potential appeals should be scrutinised to ensure there is a good chance of success
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!
cut out & keep calendar february 2014 monday
tuesday
wednesday thursday friday
saturday
sunday
• £100 penalty if not filed 1 2 self assessent. • P46(Car) for january quarter to HMRC
• VAT filing deadline 3 4 5 6 7 8 9
10 11 12 13 14 15 16
• Electronic payments • Five Valleys • February postal 17 18 19 20 21 22 23 Business Lunch.
of PAYE/NIC/CIS liabilities cleared with HMRC.
payments & any EPS information with your Accounts Office.
24 25 26 27 28 • Quorum workshop.
march 2014 monday
tuesday
wednesday thursday friday
saturday
sunday
31 1 2 • Any unpaid tax
& class 4 NIC for 2012/13 gets 5% penalty after today
• VAT filing deadline 3 4 5 6 7 8 9
• Growth Accelerator 10 11 12 13 14 15 16
Budget day!
workshop.
• February postal • Electronic • Academies 17 18 19 20 21 22 23 Seminar
payments & any EPS information to cccounts office
payments of PAYE/ NIC/CIS liabilities cleared at HMRC
24 25 26 27 28 29 30 • Get Connected. • RePLY Stroud
april 2014 monday
tuesday
wednesday thursday friday
saturday
sunday
1 2 3 4 5 6 • End of tax year.
• Health and Wellbeing disclosure deadline
• VAT filing deadline 7 8 9 10 11 12 13
Good Friday • Electronic 14 15 16 17 18 19 20 Bank Holiday
payments of PAYE/ NIC/CIS liabilities cleared at HMRC
Easter Monday 21 22 23 24 25 26 27 Bank Holiday
28 29 30
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spring 2014
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tax reference
income tax reliefs 2013/14 Personal allowance born after 5 April 1948 £9,440 born after 5 April 1938 and before 6 April 1948* £10,500 (For higher earners reduce personal allowance by £1 for every £2 of ‘adjusted net income’ over £100,000.)
Married couple’s allowance for people born before 6 April 1935 or 75 and over (relief at 10%)* £7,915 min. amount £3,040 * For people born before April 1948 reduce allowance by £1 for every £2 of adjusted net income over £26,100 to the minimum of the standard Personal Allowances of £9440. Blind person allowance
income tax rates 2013/14 Band £ Rate % 0 - 2,790 10* 0 - 32,010 20** 32,011 - 150,000 40*** Over 150,000 45**** *Only applicable to dividends and savings income. The 10% rate is not available if taxable non-savings income exceeds £2,790.
£2,160
vehicle benefits Company cars 2013/14 CO2 emissions (gm/km)
% of cars list price taxed
>94 10 95 11 100 12 105 13 110 14 115 15 120 16 125 17 130 18 135 19 140 20 145 21 For expenditure incurred on or after 6 April 2013 150 22 (1 April 2013 for companies) cars with CO2 emissions 155 23 not exceeding 130gm/km (previously 160gm/km) 160 24 165 25 receive an 18% allowance p.a. Cars with CO2 170 26 emissions over 130gm/km (160gm/km) receive an 175 27 8% allowance p.a. 180 28 185 29 190 30 195 31 200 32 205 33 210 34 Cars and vans Rate per mile 215 and above 35 Up to 10,000 miles 45p For diesel cars add a 3% Over 10,000 miles 25p supplement but maximum still 35%. For cars registered before Bicycles 20p 1st January 1998 the charge is Motorcycles 24p based on engine size.
** Except dividends (10%). *** Except dividends (32.5%). **** Except dividends (37.5% for 2013/14). Other income taxed first, then savings income and finally dividends.
capital allowances on cars
mileage allowances
Company Vans 2013/14 £3000 Car Fuel Benefit 2013/14 £21,100 x appropriate percentage* *percentage used to calculate the taxable benefit of the car for which the fuel is provided.
These indicate the maximum tax free mileage allowance for own vehicle business use. Any excess is taxable.
Standard rate 20% Reduced rate 5% Annual Registration Limit - from 1.4.13 (1.4.12 - 31.3.13 £77,000) £79,000 Annual Deregistration Limit - from 1.4.13 (1.4.12 - 31.3.13 £75,000) £77,000
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Profits band Small companies rate £0 - £300,000
Rate 20%*
Marginal (small companies) rate £300,001 - £1,500,000 23.75%* Main rate Over £1,500,000 Standard fraction
23%* 3/400*
The profits limits are reduced for accounting periods of less than 12 months and for a company with associated companies. *Different rates apply for ring-fenced (broadly oil industry) profit.
pension premiums 2013/14 •
value added tax
corporation tax year to 31/3/2014
• • • •
Tax relief available for personal contributions: higher of £3,600 (gross) or 100% of relevant earnings. Any contributions in excess of £50,000, whether personal or by the employer, may be subject to income tax on the individual. Where the £50,000 limit is not fully used it may be possible to carry the unused amount forward for three years. Employers will obtain tax relief on employer contributions if they are paid and made ‘wholly and exclusively’. Tax relief for large contributions may be spread over several years.
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Experts in the field of tax planning... It is important for your business’ reputation to make sure that you are getting honest expert tax advice. Randall & Payne’s specialist tax team, including ex-Revenue employees, will help to minimise the risks for you. Randall & Payne’s advice provides clients with choices on how to structure their affairs, an exercise requiring good judgement, experience and knowledge.
Call us today to arrange a free meeting! Randall & Payne Quorum allows business leaders to connect and share strategies for growth, while gaining the skills and tools to implement them. To find out more contact: will.abbott@randall-payne.co.uk
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Randall & Payne is a brand name of Randall & Payne LLP. Registered in England & Wales number: OC345710. Chargrove House, Shurdington Road, Cheltenham, Gloucestershire GL51 4GA. Unless otherwise indicated we use the word partner to refer to a member of the LLP. Registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales. A member of the ICAEW Practice Assurance Scheme. Randall & Payne is a brand name of Randall & Payne LLP. Registered in England & Wales number: OC345710. Rodborough Court, Stroud, Gloucestershire GL5 3LR. Unless otherwise indicated we use the word partner to refer to a member of the LLP. Registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales. A member of the ICAEW Practice Assurance Scheme.